Mystic Monk Coffee

Mystic Monk Coffee (MMC) roasting operations was started by Father Prior Daniel Mary as a way to sustain the Carmelites monastery in Clark. Wyoming. The Carmelites were a religious order of the Catholic Church and was formed in the Holy Land by pilgrims and crusaders who had chosen to remain near Israel to seek God; their mission was to lead a life of solitude, silence and prayer. Father Daniel vision is to create a new Mount Carmel in the Rocky Mountains in Wyoming that will accommodate 30 monks, a retreat center, a Gothic church, a convent for Carmelite nuns, and a hermitage.

MMC coffee is produced using high fair trade Arabic and fair trade /organic Arabic beans to blend caffeinated and decaffeinated varieties that include Mystic chants of Carmel, Cowboy blend, Royal rum pecan and Mystic Monk blend. Mystic Monk Coffee also features cyber gift shop that features merchandise such as T-shirts, gift cards, CDs and coffee mugs. The company's primary target is millions of Catholic Church members; the company's reaches his customers primary through the word of mouth and sales are made through the website, by phone calls or the secular website that places banner ads or text ads on participating websites.

MMC deals primary with a coffee broker in Seattle, the company pays wholesale price per pound and because unable to secure sustainable prices, it has to deal with the coffee price fluctuation daily. The company is looking to expand its capacity as the demand is reaching the current roaster's capacity but, the monastic environment creates challenges to the operation of the business.

Father Daniel's is optimist about purchasing a 496 acre Irma Lake Ranch for $8.9 million that will fulfill his vision perfectly and the monks believe that they would be able to acquire the property through donations and through operations of the Coffee business. Father Daniel is challenged to prepare a careful planning and execution that will enable MMC to operate under the cloistered monastic constrains, maximize the potential of monastic opportunities and purchase the Irma Lake Ranch. His biggest dilemma at the present time is how to raise the needed cash to purchase the Irma Lake Ranch.

Major Problems / Issues.

Based on my analysis, MMC faces multiple problems in being able to produce enough profits to absorb the cost of the Irma Lake Ranch.

1. Capacity issues. MMC most conspicuous problem is the current capacity and sales level and the 11% net profit margin are insufficient to generate the $8.9 million needed and even if father Daniel was able to secure a loan, the MMC current profits are insufficient to make the monthly payments assuming the loan would be for $8.9 M - $250.000 (donation) at a 5% rate for 30 years. (table 1)

2. The bottom line. MMC operates under a cloistered monastic constrains that allow the monks to work only six (6) hours daily. Under the current business model that does not allow the company to fully explore the possibilities. Currently, the company does not have the resources to operate a prosperous coffee roasting and sales business even though it was able to generate revenues of 11%. The only reason for the current profit is that the company does not account for labor cost.

3. Operation strategy.

a. There is a poor fit between the growing coffee market and the internal situation of the MMC business. The market for specialty coffee has grown exponentially, at an annual rate of 32% but, under the current situation that requires monks to devote most of their time praying and worshiping the company is unable to fully explore the possibilities.

b. The company has the potential untapped market of Catholic consumers that would give MMC a competitive advantage if the company would use the church structure to promote the business.

c. MMC average monthly sales and profits for the first year show a great potential for the business, but all evidence points out that the business model must be changed if the company wants to increase sales and earnings.

d. The quality is measurable by the steady growth and the fact that soon the current roasting capacity will be surpassed and the brand name of the MMC is unique and memorable.

e. The inherent characteristics of the in-house roasted coffee along with the story of brother Java roasting process create an attractive differentiation.

Analysis

This section focus on the analysis of MMC problems identified.

1. The five forces model:

a. Rivalry: the future of the coffee industry has high industry concentration ratios, low levels of product differentiation, relative low production cost, and high strategic stakes. The rivalry is decreased by the fact that the coffee business is a fast market growth, has a low inventory storage cost and offers low exit barriers.

b. Supplier power: MMC deals with one broker who is unable to secure low prices for the long run (no cooperative purchase power), but in an industry that had and explosive growth of 32% in seven years with no close substitutes, Suppliers can forward integrate or control the market. The supply power is very high.

c. Threat of substitutes: with 89% of U.S. Coffee drinkers brewing their own coffee, packaged coffee for home brewing, there is a high threat for substitutes and threats for new entrants is high. Product differentiation and brand loyalty can be exploited.

d. Threat of substitutes: there are very low threats for substitutes. The coffee industry is unique as customers are unwilling to switch to any other product any time soon.

e. Buyer power: with a large number of suppliers meeting the demand, and other things considered equal, buyer's power is high.

This overall analysis show that MMC is in a very highly competitive industry where the supply and rivalry power is high, the company has the potential to growth and expand its operations as a whole tapping in the product differentiation and customer loyalty characteristics.

The following SWOT analysis will help further reinforce these claims.

SWOT Analysis

A. Strengths:

o Differentiated products that appeal to the Catholic parishes across the country

o Competitive pricing and preferential treatment to frequent customers

o Home made products that brings superior product quality over competitors

o Minimum overhead expenses and no